Thank you very much for having me here today. Before I begin, I just want to say that the Conference Board is an independent, not-for-profit, evidence-based organization, and we don't lobby for any organization.
I'll speak briefly on the TFSAs first, and then I'll speak very briefly on the economic impacts of the tax changes proposed in this measure.
First, on TFSAs, why do we want to have these types of savings plans?
Tax-free savings accounts were created in 2009 to improve the incentives to save. There's sufficient evidence, we believe, that Canadians are under-saving. The share of employees with workplace pension plans is declining. Today, just 30% of Ontario tax filers who make more than $20,000 a year contribute to a workplace pension plan. Just 18% of tax filers without a workplace pension plan contribute to an RRSP, which was previously the main vehicle for saving for retirement. That means that 50% of people in Canada making more than $20,000 a year do not have a pension plan and don't contribute to an RRSP. Even for those who contribute, their contribution remains well below the average comparative contribution of those contributing to a pension plan.
Why would a TFSA be of use when so many Canadians are not taking advantage of the current RRSP rules? It makes sense basically for three groups of people. It makes sense for low-income groups, where it doesn't make sense to save in an RRSP as they face clawbacks upon retirement of government programs, such as the GIS. Also, it makes sense for young workers who could face higher tax rates in retirement as their income progresses into higher marginal rates. It also could aid seniors who try to generate income outside of an RRSP. For these groups it can eliminate very high tax rates on savings and encourage savings, which we believe is a good thing for the economy.
Have TFSAs been successful at inducing savings rates? What we do know is that they're widely used. There are almost 11 million people holding a TFSA and 18% have maxed out their contributions. One thing that really surprised me when I looked at the data is that 50% of those who had maxed out their contribution had income of less than $55,000 a year, so it's used across all income groups. That is likely to change, though, as the lifetime contribution increases over time.
Is the $5,500 limit suggested today enough? A young worker would probably be able to generate about $600,000 in today's dollars if they contributed the maximum over their lifetime. There is some question that perhaps that's not enough if they just use the TFSA, but it is significant if they use it together with an RRSP.
On income taxes, what I did is I modelled the economic impact of the income taxes, the hike on the high-income taxes and the reduction on the second bracket, and what I found is that it will boost GDP by a marginal amount. In fact, we expect it will increase GDP by just $800 million a year, adding about 5,000 jobs to the economy, so there is a marginal impact on the economy. There are a few risks, though, that people in the high-income bracket.... We have heard from our members that it makes it harder for them to attract high-income earners into Canada. We have heard that risk, but overall, there's a marginal impact on the economy.
Thank you very much.